Management are the only ones who officially runs the company, responsible for Revenues, Profits and many other critical decisions. “Much of the operations of any company depends on how the management is running the business and its efficiency in doing so.” Therefore, before we get into investing in RMTL, we need to understand management’s integrity, capability and expertise.

There are parameters which will help us to judge the integrity of management, its understanding and efficiently to run business, its future plans, its strike rates for meeting the promises, and so on. We will dive in to each aspect of management, so let us start analysing them one by one.

• Strike Rate of Management.

This is the most important aspect and forms core part of management analysis. Strike Rate is simply the number of promises fulfilled by management w.r.t. total promises given. We often hear management giving guidance regarding future plans, future achievable growth rates, etc. Through this analysis, we will get a probable future estimation of whether the management ambitions regarding future plants will be executed or not. This part is done through a simple yet very useful analysis which you will find on excel sheet, snapshot of which is:

Looking at the Management Execution Sheet in excel file “Management Analysis”, we see that 85% of the promises kept are met by the management. Hence, with strike rate of 85%, we see a very high integrity by management and it also means that many times managements promise will be fulfilled.

• Significant Business Transition tilted towards company’s advantage.

Over the years, we see the very basic commodity of pipes & tubes include only the SAW & ERW of Carbon Steel used for same application industries. Hence, the volatility of companies’ w.r.t. dependent application becomes so high that the revenues and profits are never consistent. When we compare the peers of RMTL, we see this inconsistency happening, however the story is definitely different for RMTL.

RMTL over the years right from 2011, have slowly and efficiently moved from a Basic Commodity business to special commodity ventures. Special commodity like entering into VAP Category, making very critical pipes & tubes for high-end pressure applications, making products of import substitute, etc. Management have been efficient with continuous product development leading to better product mix and higher profitability, the management have also been able to makes pipes & tubes for various application industries. From dependent on Oil & Gas CAPEX for their orders to expanding its usage to application industries like Power, Fertilizers, Automobiles, Nuclear Power, Defence, Aerospace, etc. We will keep counting the number of products it have started manufacturing and the wider application it has served:

No.	Year	Product
1	1985	SS Pipes & Tubes.
2	1995	CS SAW Pipes.
3	1999	Welded SS Tubes for Automobiles.
4	2003	Instrumentation Seamless Tubes.
5	2004/05	Duplex Steel Seamless Tubes.
6	2006	SS Welded Pipe in Super Ferritic Grade & Super Austentic Grade.
7	2007	Condenser Tubes.
8	2008	Hot Extruded Mother Pipes.
9	2009	3 LPE Coating, Welded Titanium Tubes.
10	2012	High Diameter ERW Pipes from 16 NPS to 18 NPS.
11	2013	HSAW Diameter increased from 100 NPS to 142 NPS.
12	2013	Heat Exchanger Tubes.
13	2014/15	Nickel Alloy Tubes.
14	2016	Higher Nickel Grade Pipes & Tubes.
15	2016	Incoloy & Inconel Pipes & Tubes.
16	2016	Smaller diameter instrumentation tubes.
17	2021	To set up hot extruded facility up to diameter of 10 NPS.

The advantage of all above leads to higher and higher margins in future, better product mix and more importantly stability. Hence, from an analysis of Management Execution through Strike Rate, the transition of RMTL to critical pipes & tubes requirement have encored greater value to the company.

• Management’s Capital Allocation Skills.

The above is one, very simple table to explain you the Capital Allocation skills of management. From the above, we see that about 90%+ of the Cash have come from the core operations i.e. business. Also, from the above we could also see that majority of money is employed for CAPEX Expansion. The balance part is still blocked in business in form of Change in Working Capital. Apart from the Cash Usages, the balance part is used for claim holders of business only.

With above table, it is clear that skills of management in capital allocation skills is superb, giving us another point to trust this management for future operations of company.

• Rs. 1 Test.

Rs. 1 test is an exercise conducted to understand how much market cap have increased for every Rs. 1 of addition in retained earnings. This analysis is done over the years on rolling basis as below:

Hence, with addition of retained earnings of Rs. 3,850/- Crores over 5 year period of 2011 to 2015, only Rs. 2,932/- Crores of market cap have been added. This makes the ratio for all the years comfortably less than 1. Although “Fail” has been mentioned in conclusion above, but as business is highly cyclical in nature this test does not simply justifies company’s returns.

• Other Management Analysis.

There are lot more analysis performed to understand the integrity of management in running the business. You will find all the calculation in the excel sheet containing data like their salary, companies subsidiaries, managements any criminal record, any activity leading to loss to shareholders, any expensive and failed acquisition and so on.

From all the above analysis, the only concern as of now, and according to me which is present in the company and makes me cautious is the payment structure to the promoters. These promoters take a very hefty pay for themselves in form of commission. On an average over 5 years, they have shelled out about 10% of Net Profit of the company, which is high.

Hence, from overall perspective. Management of RMTL is great in executing its plan. A maximum lag of 2 years is seen but however, it is minutely understood that any commitment by company turns into reality almost immediately. The only concern is very hefty salary structure of promoters and their son. But on overall management perspective they are doing great. This also builds our confidence regarding the integrity of the management.

Thank You!!

 

Disclaimer: Views are personal and presented through independent research. By no means there is any stock advice. Also, presented content is for learning purpose only. I might be wrong in presenting data and inaccurate data, let me know if you find any discrepancies.